The Financial Services Sector Sustainability Disclosure Regulations (SFDR) 2019/2088

Regulation of the European Parliament and of the Council (EU) 2019/2088 (SFDR) Sustainable Finance Disclosure Regulation (SFDR) of 27 November 2019 on the disclosure of information on sustainability in the financial services sector (Text with EEA relevance).

This regulation enters into force on the twentieth day after its publication in the Official Journal of the European Union. This regulation applies from March 10, 2021. Notwithstanding paragraph 2 of this article, however, article 4 par. 6 and 7, Article 8 para. 3, Article 9 par. 5, article 10 par. 2, Article 11 par. 4 and Article 13 par. 2 apply from December 29, 2019 and Article 11 par. 1 to 3 applies from 1 January 2022.

Regulation (EU) 2019/2088 focuses on improving transparency in the financial services sector in connection with sustainability. Its aim is to reduce information asymmetries between providers of financial products and services (financial market participants and financial advisors) and final investors.

The regulation introduces information disclosure obligations for financial market participants and financial advisors in the following areas:

• Inclusion of sustainability risks: Market participants and advisers must disclose their policies regarding the incorporation of sustainability risks into their investment decisions and the provision of advice. They must also disclose how they take these risks into account when choosing financial products for clients, and what impact these risks may have on investment returns.
• Consideration of adverse sustainability impacts: Market participants must disclose information on whether and how they take into account the main adverse impacts of their investment decisions on sustainability factors (eg environmental impact, social aspects, human rights). They must also describe their due diligence policies in this area and, where appropriate, state the reasons why they do not consider such impacts.
• Promoting environmental or social characteristics: If a financial product promotes environmental or social attributes, market participants must disclose information on how these attributes are achieved. They must also state whether any reference index is used to assess these properties and how this index is aligned with the declared properties.
• Sustainable investments: If the objective of the financial product is to achieve sustainable investments, market participants must disclose information on how this objective is to be achieved and which index is used as a benchmark. If the goal is to reduce carbon emissions, they must also state a target exposure to low carbon emissions in the context of the Paris Agreement.
• Transparency of remuneration policies: Market participants and financial advisers must disclose information on the extent to which their remuneration policies are consistent with incorporating sustainability risks.

In addition to these areas, the regulation also introduces requirements for regular update published information and on them presentation on the websites of market participants and financial advisors.

Regulation (EU) 2019/2088 represents an important step towards greater transparency and responsibilities in the area of sustainable investments. Its implementation will help end investors better understand the environmental and social impacts of their investments and will enable them make more informed investment decisions.